IRIS International Inc., Earnings Call Transcript

IRIS International Inc. (IRIS)

Q2 2008 Earnings Call

July 28, 2008, 4:30 pm ET

Executives

Cesar Garcia - President and CEO

Peter Donato - Corporate VP and CFO

Tom Adams - CTO

Tom Warekois - President of IRIS Diagnostics

Analysts

Steve Crowley - Craig-Hallum Capital

Debjit Chattopadhyay - Boenning & Scattergood

James Sidoti - Sidoti & Company

Ernie Andberg - Feltl & Company

Matthew Scalo - Canaccord Adams

Sal Kamalodine - B. Riley & Company

Gary Schwab - Valley Forge Capital Management

Thomas Laird - Mulholland Capital

Presentation

Operator

Good afternoon, and welcome, ladies and gentlemen, to the IRIS International Inc. conference call for a discussion of the company's 2008 second quarter financial results. Moderating today's call are Cesar Garcia, President and Chief Executive Officer, and Peter Donato, Corporate Vice President and Chief Financial Officer.

At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. A PowerPoint presentation is available for those participating via webcast. At the request of the company, we will open up the conference call for questions and answers after the presentation. The company requests that certain - requests that the Question-and-answer session be limited to one question and one follow-up per caller.

Before we begin, it is necessary to read the following forward-looking statements. This presentation contains forward-looking statements made in reliance upon the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statement include, but are not limited to, the company's views on future financial performance, market growth, capital requirements, new product introductions and acquisitions, and are generally identified by phrases such as thinks, anticipates, believes, estimates, expects, intends, plans and similar words.

Forward-looking statements are not guarantees of future performance, and are inherently subject to uncertainties and other factors which could cause actual results to differ materially from the forward-looking statement. These statements are based upon, among other things, assumptions made by and information currently available to management, including management's own knowledge and assessment of the company's industry, R&D initiatives, competition, and capital requirements.

Other factors and uncertainties that could affect the company's forward-looking statements include, among other things, the following. Identification of feasible new product initiatives; management of R&D efforts and the resulting successful development of new products and product platforms; acceptance by customers of the company's products; integration of acquired businesses; substantial expansion of international sales; reliance on key suppliers; the potential need for changes in long-term strategy in response to future developments; future advancements in diagnostic testing methods and procedures; potential changes in government regulations and healthcare policies, both of which could adversely affect the economic of the diagnostic testing procedures automated by the company's products; rapid technological change in the microelectronics and software industries; and competitive factors, including pricing pressures and the introduction by others of new products with similar or better functionality than our products.

These and other risks are more fully described in the Company's filings with the Securities & Exchange Commission, including the Company's most-recently filed annual report on Form 10-K and quarterly report on Form 10-Q, which should be read in conjunction [with the] discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

At this time I would like to turn the call over to Mr. Garcia, President and Chief Executive Officer of IRIS International. Please go ahead, Mr. Garcia.

Cesar Garcia

Thank you, Sara, for reading the forward-looking statement. Good afternoon. We welcome you all to the IRIS International second quarter 2008 conference call. Today our presentation consists of three parts. I will present a brief business overview followed by the earnings report by our CFO, Peter Donato. After Peter's report, our Chief Technology Officer, Dr. Tom Adams, will present the status of our NADiA PSA initiatives in detail. We will have a Q&A session at the end, with Tom Warekois, President of IRIS Diagnostics, joining us at that time.

We are pleased with our financial results for the second quarter and the strong outlook for the second half of the year. In the second quarter we achieved record revenue, which is 11% ahead of the prior year, despite a tough comparable in the second quarter of 2007. The second quarter of 2008 was the second-highest domestic instrument revenue quarter, and we're also very pleased with achieving approximately $12 million in consumables and service revenue, which represents a 22% increase over prior year, and a 10% growth over the sequential quarter. Record revenues in our Sample Processing Division of 14% were a result of a high demand for the new centrifuge, the Express 4 Centrifuge.

In terms of operating income, our operating income reached $2.9 million or 12% operating margin for the period. Though not all of the initiatives continued to progress, and we will cover later the status of the VELOCITY and also the continuing progress of regulatory approval of our NADiA PSA. On the public side, we also achieved the re-qualification for the RUSSELL 2000 Index and as you know, IRIS was selected as one of the Top 100 small companies in the nation by Forbes Small Business Magazine.

Moving on to Slide six, we recap our accomplishments over the last year and over the last five years. Over the last year, on the left, we submitted the 510(k) application and CE Mark application for the VELOCITY. We shipped the beta and commercial evaluation units in the second quarter. We also launched Express 4 Centrifuge, and we have also cultivated many commercial successes. Among those, record revenue and record number of units, and we've received a number of recognitions from industry, including several from our GPO partners, the MedAssets GPO Award, the Premier Gold Supplier Award, the Omega Customer Satisfaction Award, and as I mentioned before the Fortune Small Business 100. Therefore, we have worked hard in enhancing our management team and enhancing the technical core competences of the company, so we can execute the product pipeline that we have in our horizon.

Over the last five years, we have maintained a steady state -- steady stream of new products and enhancements on those products. We have exceeded comparable quarter revenues 18 times. We have exceeded comparable profit 12 times, and we have accumulated cash. Today, we have 12 times the cash that we had 5 years ago at $26 million, after two acquisitions and $6 million in stock repurchases in the first quarter of 2008. In conclusion, we have done event where we have expanded our addressable market from $300 million to over $4 billion in addressable market opportunities.

On Slide seven, you can see the steady process of the iQ200 Analyzer line, and I'm pleased to report that we're reaching almost 2,000 units. And with the shipment of 125 units in the second quarter of this year we got to 1,945, a little bit shy of the 2,000 mark. As I mentioned before, strong demand in consumables is accelerating our revenues and accelerating our earnings.

Moving on to Slide number eight, I want to cover the status of the iChem VELOCITY, our second instrument platform. In terms of the regulatory status, we have now CE Mark and clear all configurations for the VELOCITY. Last week, we submitted the responses to the additional requests for information from the FDA, and FDA clearance is expected in the second half of 2008. The verified evaluations are complete, and we are planning full scale international shipments starting in the third quarter of 2008.

We received significant feedback from our customers and also significant feedback during our internal evaluations, which required us to implement certain changes. We just quite didn't make it to ship the units in the second quarter, but we're in position to ship the units in the third quarter. Our status now is $1.2 million in backlog of VELOCITY and iRICELLS. The good news is that the majority of the backlog is for iRICELLS, which is exactly what we expected, that the iChem VELOCITY was going to help us to pull more IQ Analyzers.

So we're very pleased with the order book, and we're also very pleased with the interest that is being shown by the distributors and customers. For example, we'll be presenting the iChem VELOCITY to about 120 prospective customers this week.

The iChem VELOCITY and the iRICELLS program is a very important program because it would gradually absorb the excess capacity and losses that we have been incurring in our Marburg, Germany strip manufacturing facility. We would be selling products with higher margins. It would double the consumables trail in the international market by having the VELOCITY and the iQ200, and very important, it would increase the pull-through as a result of having a complete product line, where we can sell systems into the central laboratories, centralized labs, emergency rooms and other [centralize] locations. In conclusion, this opened significant a market opportunity, an opportunity of $350 million in our iRICELL market.

Next, I want to cover two important initiatives that we're launching tomorrow here at the [ACC] in Washington, D.C. The first of those is a new initiative for urinary track infections. There is a change in government regulations and effective October 2008, there is a new medical mandate that requires hospitals to perform tests on patients pre-admission for UTI and a number of other hospital-acquired infections. So we're positioning the iQ200 system as a platform and the iRICELLS for the capability to detect and to screen UTI on admission. The news of the Medicaid/Medicare protocol is called "the patient presence on admission" protocol. So if a patient is admitted and the hospital doesn't have evidence that that patient has an infection, and the patient develops an infection during the hospital stay, Medicare will not reimburse for those expenses.

UTI, urinary track infection, is the most common hospital-acquired condition. It affects over 600,000 U.S. patients per year and it costs about $758 per treatment. So if you do the math, it's a very significant load, a significant expense for the healthcare system. These changes in reimbursement will definitely change the way that the hospitals operate, and they will proceed to perform screening on admission to make sure that the patient, if he has a urinary tract infection and is identified before he get admitted, that they will be reimbursed. And finally, we believe that with the small hospitals not being able to carry this expense, which we they will not be reimbursed by Medicare. It may be driving consolidation in the hospital segment, which will further accelerate the automation such as of the urine analysis test that we perform with the iQ200 system.

The second initiative is something that we have been working on for several years, and these are LEAN LABORATORY initiatives. The LEAN LABORATORY initiatives will mean operating procedures that eliminate waste and at the same time that they accelerate turnaround time. So we will be presenting tomorrow, in collaboration with Becton-Dickinson, the company's LEAN LABORATORY initiatives. In this laboratory initiative, the LEAN LABORATORY initiative we use the StatSpin Centrifuge, the iQ200 system and the BD sample collection devices.

And in turnaround what it means is that the hospitals that want to process patients very quickly, the buzzword is that they want to have short turnaround times. The doctors want to get the results as soon as possible, so they can manage the patient before they go back to their offices. As you know, typically in a hospital the doctor does the rounds and he prescribes different diagnostic tests, and it's important to have the whole battery of tests finished before the doctor goes back to the office. So I think that is a very really important thing, a really important opportunity that we can collaborate with Becton-Dickinson in that LEAN LABORATORY initiative. In addition, to that, we're pleased to inform you that we have signed a distribution agreement for a co-branded IRIS-BD Express 3 Centrifuge and Becton-Dickinson will be the distributor for the StatSpin Express 3 Centrifuge in Eastern Europe, the Middle East and Africa.

In summary, the IRIS business continues to be very strong despite the poor macroeconomic conditions. We haven't been affected by the cash crunch or any of the other things that you read in the press. In addition, as the Dr. Adams will cover next in the NADiA presentation. You will see that our expectations of the clinical utility of the NADiA PSA continues to increase, and in proportion to that also the value in terms of clinical value to the patient and reimbursement is a much higher potential than we have ever anticipated. And we know that it could support stand-alone business, not that we want to do one, but it is a significant business opportunity. Our new product initiatives continue to make progress with no technological set-backs. And although, as I said, the potential revenue opportunities are higher than anticipated, the new product releases are taking a little bit longer than planned, mostly due to the regulatory hurdles. Finally, we have a good pipeline and a positive outlook for IRIS in the quarters ahead.

With that, I will transfer the call to Peter, who will cover the financial results for the second quarter.

Peter Donato

Thank you, Cesar. I'm on slide 13, which is our quarter to date revenue slide. As you can see, consolidated revenue was $23.8 million for the second quarter, up from $21.3 million last year, or 11%. This represents a strong record second quarter. The IVD segment revenue also increased 11% or $2 million, to $20.3 million from $18.3 million last year. Our IVD instrument revenue declined slightly year-over-year to $8.4 million versus $8.6 million, as our units decreased to 125 this year versus 128 last year. Please keep in mind, we did have the $1.2 million VELOCITY backlog that Cesar mentioned.

IVD consumables and service revenue hit record levels in the second quarter of '08 at nearly $12 million, a 22% increase over 2007's $9.8 million. This was primarily driven by record [laminate] cases shipped and record strip volume, as well as the conversion to service contracts on instruments coming off their initial warranties. Revenue in our Sample Processing Division increased to a record $3.5 million for the quarter, up from $3 million a year ago, an increase of 14%. This increase is attributable to strong demand for the core Express products, especially the new Express 4.

Moving to Slide 14, which is the year-to-date revenue slide, you can see the consolidated revenue was $45.4 million year-to-date, up from $41.9 million last year or 8%; a record first half of the year for us, even with the difficult year-over-year comparisons. Our IVD segment revenue also increased 7% to $38.5 million from $36.1 million last year.

The IVD instrument revenue declined year-over-year to $15.8 million from $17.1 million, as our units decreased to 242 this year versus 257 last year. Keep in mind, 2007 included the one-time shipments to two of our largest accounts, as well as the VELOCITY backlog this year that didn't ship. IVD consumables and service revenue hit record levels in the first half of 2008 at $22.8 million, a 20% increase over 2007's $19 million. Again, we saw record volume in our consumables line of business, as well as successful conversions of warranty contracts to service contracts. Revenue in our Sample Processing Division increased to nearly $7 million for the first half of 2008, up from $5.8 million a year ago, an increase of 19%. Once again, the engine for that growth was the Express 4.

Slide 15 shifts gears to gross profit and margin. As you can see, gross profit was $12.3 million this year, up from $10.8 million last year, with margins increasing to 52% from 50% with improvements in most area of our business. You see the mirror image in the IVD segment, with gross profit increasing to $10.6 million from $9.2 million, with margins improving to 52% from 50%. Our IVD instrument gross profit decreased year-over-year to $3.7 million from $4.2 million, with margins declining to 44% from 49%. The primary reason for the decline included unfavorable foreign exchange related to purchased instruments denominated in yen being released from our inventory, and this cost IRIS over $200,000. We also had a one-time pricing concession to an international customer totaling $150,000. As we stated in Q1, after the special circumstances we expect margins on instruments to be approximately 46-48%, depending on the mix.

Our IVD consumables and service gross profit increased to $6.9 million, up from 2007's $5 million, taking the margin up to 58% from 51% for the same period a year ago. This is inclusive of almost $300,000 of unfavorable foreign exchange related to strip purchases denominated in yen, as well as foreign exchange costs associated with operating our manufacturing facility in Germany. The margin improvement is in line with the company's guidance in the stated 60% target communicated on our earlier calls, as we continue to leverage volume in our profitable consumables business, as well as improvements in service profitability. Gross profit in our Sample Processing Division increased to $1.8 million for the year, up from $1.6 million, with margins declining slightly to 51% from 52% last year. The slight decline is a result of product mix, with Express 4 drawing slightly lower margins in the early years of its life cycle as compared to its more mature centrifuge product relative.

Moving to Slide 15, which is the gross profit for the year-to-date, we can see the consolidated gross profit was nearly $24 million this year, up from $20.8 million in the first half of last year, with margins improving to 53% from 50% in all areas of our business. The IVD segment gross profit also increased to $20.4 million, up from $17.9 million, again with margins improving to 53% from 50%. IVD instrument gross profit decreased year-over-year to $7.5 million from $8.1 million. However, margins increased slightly to 48% from 47%. The instrument margins are in line with our expectations, as unfavorable foreign exchange expenses were offset by favorable [LIF] and inventory adjustments, especially the earlier part of this year.

IVD consumables and service gross profit grew to a record $12.9 million, up from 2007's $9.7 million, taking the margin to 57% from 51% for the same period a year ago. This is inclusive of over $400,000 of unfavorable foreign exchange related to strip purchases denominated in yen, and once again unfavorable variances from operating our German manufacturing facility. Gross profit in our Sample Processing Division increased to $3.5 million for the year, up from $2.9 million, with margins improving to 51% from 50% last year.

Looking at operating expenses on Slide 17, you can see that marketing and selling expenses increased year-over-year from $3.3 million or 15% of sales to $3.9 million or 16% of sales. This increase was almost entirely attributable to increased personnel and related costs, with our continued investment in marketing and sales personnel necessary to support our continued growth, including international personnel necessary to launch VELOCITY. We also experienced increased fees attributable to GPO sales, while Q2 also included approximately $200,000 in launch-related costs, of which approximately $150,000 were incremental charges from market research on our new product launches. G&A expenses increased from $2.3 million to $2.9 million and from 11% to 12% of sales on a percentage basis. The primary reason for the increase are the costs associated with an enhanced IT and financial team hired late last year to improve IRIS' overall administrative infrastructure.

R&D spending decreased to $2.6 million this year from $3 million last year, while decreasing from -- to 11% from 14% of sales on a percentage basis. These declines were primarily attributable to heavy iChem VELOCITY development charges last year as compared to this year, while 2007 contained over $200,000 for the now discontinued ADIR. The company did, however, spend nearly $300,000 more in ongoing personnel and related charges, particularly in developing our new molecular diagnostics product line. Overall, we are up about $800,000 versus last year, but remain relatively flat at 40% of sales on a percentage basis. Looking at operating expenses year-to-date, you can see that marketing and selling expenses increased year-over-year from $6.4 million or 15% of sales to $7.7 million or 17% of sales. Again, most of the costs are attributable to increased personnel, as well as the increased GPO fee, while the first half of 2008 also included approximately $500,000 in incremental new product-related launch costs.

G&A expenses increased from $4.7 million last year to $5.6 million this year, and from 11% to 12% of sales on a percentage basis. The reasons are the same as they were in the second quarter, more costs in IT and finance. R&D spending decreased slightly to $5.3 million from $5.4 million last year, while decreasing to 12% from 13% of sales on a percentage basis, with savings from last year's heavy spending on VELOCITY and ADIR being partially offset by the increased personnel and related costs and IMD. Overall, we're up just over $2 million versus last year, increasing from 39% of sales to 41% of sales on a percentage basis, but we should start the trend more favorably as the year progresses, as we leverage greater sales and incur fewer launch-related charges.

Looking at the P&L for the quarter on Chart 19, I won't go line by line, but I will cover some of the highlights. As you can see, we had our record second quarter revenue and the most ever consumables ever shipped by the company, and also the best Q2 ever at Sample Processing. You will see strong margins, especially in the consumables and service, and strong record second quarter EPS at $0.12 per share.

Moving to Chart 20, it's pretty much the same story. You see record first half of the year revenue, strong consumables, and the best first half ever at ISP, and you see strong record first half of the year EPS.

Shifting gears to the balance sheet and its commentary on Slides 21 and 22, on March 7th we commenced repurchasing shares of company's stock and during Q2 we purchased an additional of 60,000, costing $744,000. Even with this repurchase, we saw the cash remained strong at $26 million. We saw improvements in reducing our AR balances; however, our inventory increased to higher levels than we anticipated due to delays in product launches and transition. We estimate this inventory cost nearly $3.5 million. However, we anticipate drawing most of this down by the end of the year. In addition, IRIS had a cash tax payment in the second quarter of this year totaling over $750,000. We expect similar cash tax payments in the third and fourth quarters of this year, as the company has exhausted most of its legacy NOLs.

The last financial slide is on Slide 23 and it's related to our guidance. We reaffirm our revenue at at least $98 million and EPS at $0.48 per share, not including the impact of share buyback. We do have one slight change; as we'll continue to invest in R&D, we're calling it 12% when we previously said 13%.

So that is our guidance, and I will turn the call back over to Cesar Garcia.

Cesar Garcia

Thank you, Peter. The company issued two press releases today, one reporting the earnings and another one reporting the status of NADiA PSA. I just wanted to mention that in case some of you have not seen the second press release, you should try to put your hands on it. We're going to go through the details of our disclosure in the press release, and for that we have that we have Dr. Tom Adams, our Chief Technology Officer. Tom?

Tom Adams

Slide 25 illustrates that IRIS is more than a urinalysis company, and today I am going to tell the status of our NADiA PSA new product initiative. As many of you know, this assay is an ultra-sensitive method for the detection of PSA following prostatectomy, and that our technology measures protein levels far below those detected by current methods that are in the laboratories.

Slide number 26 demonstrates the broad and very sensitive range that NADiA PSA is able to detect molecules in, compared to the current PSA molecule testing. This is an ultra-sensitive detection capability it is not present in other assays, and gives us the capability of detecting PSA levels that are undetectable by current methods.

Slide 27 reviews the results of a pilot study that we performed towards the end of last year, where we looked at the results of 40 patients that had stable disease and 40 patients that had recurrence of disease. And you can see that the rising curve, illustrated by the red curve with the open circles, the PSA results showed an exponential increase in the PSA values, whereas in the blue squares, it showed that the stable patients actually had virtually no increase in PSA values. So on the average, the NADiA assay predicted biochemical recurrence about 2 and a half years earlier than the full PSA methods that are currently used in the laboratories.

In terms of clinical performance then, we have demonstrated that the NADiA PSA can distinguish between patients that have stable versus recurrent disease about 2 and a half years earlier. Also in cutoff of 15 pg/ml, [suffering] patients at low risk from disease recurrence from those that have a higher risk of recurrence. In June of this year, there was a paper published in JAMA from Johns Hopkins, and that is a publication by Trock et al, where they showed that patients had rapid doubling times of less than 6 months compared to those who had doubling times of greater than 6 months, a benefit from salvage radiation. In the study, it was shown that men with rapid doubling times actually had greater survival than those patients that did not. This shows the ability of a PSA assay having the potential to separate patients into different groups.

So the claim that we are in the process of defining with the FDA for a PSA is an in-vitro diagnostic assay intended to be used in conjunction with clinical evaluations as an aid in predicting the risk for recurrence of prostate cancer for the period following radical prostatectomy of greater than 8 years. In addition, that values below 15 pg/ml are associated with a reduced risk for recurrence. We expect that a testing protocol following a prostatectomy would be done 3 months after RP with a conventional assay, and if it's less than 100 pg/ml future tests would be conducted with NADiA. These tests would be conducted every 3 months for the first year, every six months for the second year, and probably yearly thereafter or in some cases they actually may cease testing.

The medical benefits of this assay then for stable or potentially stable patients are to avoid unnecessary treatment, and some examples there are radiation therapy, hormone ablation and chemotherapy. So it would also result in less surgical approaches in select cases, such as the removal of lymph nodes, which is a very invasive procedure. The assay would give the patient higher quality of life, because knowledge equals peace of mind, and there would be lower side-effect morbidity associated with follow-on cancer treatments. Ultimately, this would result in lower diagnostic spending, eliminating unnecessary and ineffective diagnostic procedures.

Slide 31 shows the regulatory path that we have set on with the FDA. We're pursuing a 510(k). The status is that the FDA has reviewed the majority of our analytical questions for the method, and we have submitted a pre-IDE package to the FDA. This IDE package includes the proposed clinical protocol that we plan on running, to confirm the statement of use for the product. We have reached agreement on a protocol and to conduct studies at two sites. Those will be at the University of Washington and another leading U.S. academic center, and we plan on following the completion of clinical studies and to submit a new 510(k). So the regulatory strategy is a pre-IDE, which has been completed, and a protocol and IRB approval, which has been mostly completed; we have a meeting with the FDA towards the end of August, and we expect them to begin the clinical study and begin the marketing clearance the first half of '09.

So in terms of reimbursement, as a result of assembly a medical advisory board and talking to lots of folks, we expect that the end user pricing to be in the neighborhood of $300 to $1,000 per test. The rationale behind this is that we have strong medical necessity arguments. The documentable financial benefits for the healthcare system would be the avoidance of unnecessary treatment. For instance, radiation therapy costs $25,000 to $50,000 per treatment, chemotherapy $17,000 to $30,000 annually; hormone therapy $6,000 annually, and an additional lower side effect and negation of associated management costs. Secondary is that we'll end up with reduction of unnecessary and ineffective diagnostic testing, both in vivo and in-vitro, and have a better quality of life that is lower morbidities short term, improved outcomes for recurrent patients and greater piece of mind.

In terms of reimbursement, we've looked at the codings, the reimbursement options. The Category 1, which is the existing PSA test, has been rejected. It solely reimbursed at $26 per test. We also have rejected the code stacking option, which would have been about $67 a test, and we are going pursue then a miscellaneous code, which will give us the opportunity for better pricing.

Now I would like to turn the presentation back over to Cesar Garcia.

Cesar Garcia

Thank you, Tom. You have seen from our presentation we have been addressing the commercialization of NADiA PSA from five different approaches. Not only is it important to have the proper regulatory claim, but you need to have all of these other steps to be able to have a successful product. So I'm going to briefly describe what that means.

Step number 1 is obviously having the maximum [funded] regulatory claim, accompanied with future health economic studies. The second path is the creation of the demand. We're working with the doctors in the medical advisory committee and other influential members of related associations to get a demand for the test. Not only do you have to have a clear-cut plan, the doctors have to be willing to order it, and I have to report that every doctor that we have approached with the capabilities of NADiA PSA, they are very excited with the potential to improve the patient care. Obviously we have been working on the reimbursement strategy, which Tom just covered, and we made a decision to go with miscellaneous code, and although the approval is taking longer than we anticipated, we have continued to pursue the strongest claim, and that is what we are now targeting, between $300 to $1,000 per test at the end user level.

The fourth angle we have been working very hard is also working with our commercial partners, both in terms of providing the technology to others for licensing, and also to join forces with a larger IVD company that can help us to get this to the market faster. And finally, but very important, is creating the supply side. The supply side is a laboratory network that can provide the testing with the quality control requirements that are needed with the consistency, and as part of that, we're also working in an automation project so the NADiA PSA can be implemented in an automated platform that can produce a thousand tests per day.

In conclusion, in terms of the NADiA, the next test for NADiA PSA, we have a meeting with FDA cleared for August to review the Pre-IDE. We also are organizing a meeting with the Center for Medicaid and Medicare Services to talk about reimbursement, and once we get approval of the Pre-IDE, we'll begin the clinical study to support the prognostic claim. After that, as Tom mentioned, we're going proceed with a new 510(k) with the claim that basically we can identify low-risk patients. That is a very important claim. And finally, we're continuing our negotiations with commercial partners.

That concludes our formal presentation today, and we can open to the questions and answers now.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We'll go first to Steve Crowley of Craig-Hallum Capital.

Steve Crowley - Craig-Hallum Capital

Good afternoon, gentlemen.

Cesar Garcia

Good afternoon, Steve.

Steve Crowley - Craig-Hallum Capital

Nice performance, especially with a little bit of change in your deployment strategy around VELOCITY and that is really where I want to focus my first round of questions. The final calibrations, fine tuning, it sounds like you chose to do versus ship some product at the end of Q2. Are you through that? When will you be through that? How significant is this or have you already checked the box?

Cesar Garcia

Okay, the answer is that we have gone through most of the issues that we're identifying. One of the realities that we have to face is that we are going to a very competitive market and it was very important that the system that goes out, goes out perfect. We don't want to take any chances because we have been extremely successful with the iQ200 and want to be equally successful with the iChem VELOCITY. We're in this process that validating most the changes and a few things that we still have to finish, but we expect to be shipping within weeks, okay? So that is why we feel confident that we'll be shipping in the third quarter of this year, because we worked hard to finish and we just couldn't get there.

Steve Crowley - Craig-Hallum Capital

It also seems like you, to a degree, have the luxury of doing it right. What is the risk of dislocation? Have you lost some business because of the delay, or have you been able to keep all the deals that you won?

Cesar Garcia

I think we have kept the interest and we reported $1.2 million in backlog at this point in time. So Tom Warekois has just joined and he can summarize for you the interest that we have developed for the AACC. Tom?

Tom Warekois

Hello, everyone. Yes, Steve, basically what we have done is that we tried to do whatever any company does when we have kind of unanticipated delays, is really try to hold the interest and bridging through discussion through communication. The interest is still there, and as evidence of that is that we have basically the VELOCITY that we're showing for offsite for ex-U.S. customers here at AACC, and over a 2-day period we have 120 customers signed up to see the product. So that to me is an absolutely full schedule and fills up our slots that we have there, and people are very anxious to receive the product, but as Cesar said we have to be sure that the product is -- every "t" is crossed and every "i" dotted before we actually release the product. But the interest is there and we'll be discussing that with our distributors later during the week.

Steve Crowley - Craig-Hallum Capital

Okay. Then in terms of follow-up, I believe I heard that you were quite pleased with how the VELOCITY is leading to bundled system sales internationally. Can we consider that validation that at least half of those systems are likely to be as part of microscopy and chemistry internationally? Is that the right way for us to think about it? And a related question I'll try to sneak in here relates to instrument gross margin, Peter, and whether it's realistic for us to look for improvement off of Q2 levels over the balance of the year?

Peter Donato

I think the answer to your first question is yes, I was going to let Cesar or Tom field it. With the margins, as I said, Steve, our run-rate’s somewhere in that 46% to 48% range. So the math on that would indicate we should see improvements the second half of the year. VELOCITY being back loaded will bring us down a bit, but we should be able to beat the 44%.

Steve Crowley - Craig-Hallum Capital

Okay.

Tom Adams

Steve, in answer to your first question, it's been very interesting, because I've had some earlier discussions in the year with some of our distributors in Europe, where there was a feeling that the market was still in the status of ordering separate urinalysis systems from microscopy systems. If we talk to our key distributors now, that change happened very rapidly, and I think it has happened for two reasons. I think that there are more offerings that are coming out potentially from competitors that have helped driven it, and I think there is this whole issue about people see the value of being able to put the two together and really offer the efficiencies of a work cell. So we're finding right now validation that the work cell configuration is going to become the predominant configuration that we'll be selling going forward.

Steve Crowley - Craig-Hallum Capital

So is it safe for me to imply --

Cesar Garcia

Steve, that is enough questions for now.

Steve Crowley - Craig-Hallum Capital

…that you're getting into more microscopy deals because of having the complete bundle?

Tom Adams

I think that the value of being able to offer a combined microscopy system with a urine telemetry system makes us strategically stronger. We have always been fighting with one hand tied behind our back, and I think when you go in now and start talking to customers about both sides of equation and they're looking for overall efficiency in urinalysis, for sure that is giving us a competitive step up from perhaps what we have been doing prior.

Steve Crowley - Craig-Hallum Capital

Okay. Final question, and I will hop back in the queue. Obviously, you have a -- in a typical accelerator, or increment, I should say to your business in Q3 versus Q2, meaning there has typically been some seasonality in instruments from Q2 to Q3. Does the ability to ship against this backlog of international orders offset that? Meaning there are prospects that instruments could be up sequentially? Thanks for taking my questions. I will hop back in the queue.

Cesar Garcia

The answer, I don't want to really answer individually between instruments and consumables, but we do expect a very good third quarter. If you look in terms of projections for the year, we're projecting a much stronger second half than the first half. With that, we can take the next question.

Steve Crowley - Craig-Hallum Capital

Thank you very much.

Cesar Garcia

Okay.

Operator

We'll go next to Debjit Chattopadhyay with Boenning & Scattergood.

Debjit Chattopadhyay - Boenning & Scattergood

Hey, thank you for taking my question. Most of the questions were asked already. But my questions would be on the Radical Prostatectomy. How many Radical Prostatectomy are performed every year? Just to get a gauge of the market size for the NADiA PSA Assay?

Tom Warekois

There are about 180,000 in the U.S.

Debjit Chattopadhyay - Boenning & Scattergood

So roughly every patient, if you just start testing after three years, you are look at total of 4 plus 4, 8 tests?

Tom Adams

For the first year, two the second year, and then yearly thereafter, probably as a protocol. Then there is a backlog of about 2 million men walking around right now that have actually had their prostates removed already.

Debjit Chattopadhyay - Boenning & Scattergood

And just one again, I didn't write down the number. 120,000? 130,000 annual Radical Prostatectomy?

Tom Adams

180.

Debjit Chattopadhyay - Boenning & Scattergood

Okay. And the final question, is there any clarity regarding the next to phase of the trials, how many patients you need to enroll, anything of that, or that’s going to come in after the August meeting with the FDA?

Tom Warekois

We have done the calculations, we have done our own calculations obviously and the FDA has to agree, but the size of the trial is really not that large.

Debjit Chattopadhyay - Boenning & Scattergood

You think you could have this whole thing done in about three months, in terms of getting the samples and --?

Tom Warekois

We have identified the samples and, yes, we could get the testing done within that period of time.

Cesar Garcia

You are talking hundreds, you are not thousands of patients, okay? We calculate --

Debjit Chattopadhyay - Boenning & Scattergood

We'll talk to you more tomorrow. Thank you so much.

Operator

Next from Sidoti & Company, we’ll move to James Sidoti.

James Sidoti - Sidoti & Company

Good afternoon, Cesar, can you hear me?

Cesar Garcia

Yes, Jim, I can hear you fine.

James Sidoti - Sidoti & Company

Two questions, one on the changes that were necessary for the iChem VELOCITY units, were those hardware, software or a combination?

Cesar Garcia

It's a collage of things, it was a little bit of everything, okay, and when you are talking about an instrument reagent system, you can address things in only one thing. But a most of the -- to give you more specifics of the hardware and software changes are all finished. We're doing now to get the revalidation of the chemistries, to make sure nothing was affected.

James Sidoti - Sidoti & Company

Okay, and did you have to go back for a CE Mark approval again or --

Cesar Garcia

No, because remember that the changes -- the performance of the machine is the same. We just trying to make sure that's all reliable.

James Sidoti - Sidoti & Company

Okay.

Cesar Garcia

The claims did not change and the certifications did not change.

James Sidoti - Sidoti & Company

Okay, so you didn't have to go back and get re-approved?

Cesar Garcia

No.

James Sidoti - Sidoti & Company

Okay, and then on the prostatectomy prostate cancer recurrent test, you said the reimbursement you could possibly get if you get a miscellaneous code, you said that was $300 to $1,000 per test, is that correct?

Cesar Garcia

That is correct.

James Sidoti - Sidoti & Company

Okay. And as far as the timeline goes, if you have to go back and run a sample, I assume it's retro -- I assume these are patients where you already have the samples and somebody already knows the results, so you said you think you could do that in about 3 months?

Tom Warekois

That is correct.

James Sidoti - Sidoti & Company

So then you would think that FDA approval would come sometime in the first half of 2009, if everything is on track?

Tom Warekois

That is correct.

James Sidoti - Sidoti & Company

Does that sound right?

Tom Warekois

Yes.

James Sidoti - Sidoti & Company

Okay. Alright, thank you.

Tom Warekois

Thank you, Jim.

Operator

(Operator Instructions). We'll go next to Ernie Andberg of Feltl & Company.

Ernie Andberg - Feltl & Company

Hello, Cesar.

Cesar Garcia

Hello, Ernie. How are you doing?

Ernie Andberg - Feltl & Company

I am good. It's easy to make an analyst happy. Now I will ask what is happening with the FDA and iChem VELOCITY and how would you characterize the questions and your ability to effectively answer the questions?

Cesar Garcia

Okay, the FDA, there was a change in the review of protocol for these types of in-vitro diagnostic devices. Basically they requested us to go back and provide much more additional information that we have not provided with the original submission, because have we followed the protocol that have been routinely followed for these IVDs. We have basically collected the information and went back to the FDA, and I'm sure that there will be something else that we have to finish with them. But so far we're back to the FDA with the majority of the responses, and we'll follow-up with a conference call to clarify the things that are missing.

Ernie Andberg - Feltl & Company

Okay.

Cesar Garcia

So I think that we are still on track to get the product in the market in the first quarter of 2009.

Ernie Andberg - Feltl & Company

Alright. To one of the questioners about the seasonal pattern of sales, you said you expected a good third quarter, and with a good third quarter you needed a very strong fourth quarter to make it to a minimum of $98 million worth of revenues. Cesar, what are you looking at that gives you confidence in your ability to do that and get to the $98 million?

Cesar Garcia

Well, first thing is you have the release of the new product platform in the second half of the year that gives you revenue -- momentum on the revenue side. In addition to that, Tom Warekois and his team have done a very good job in terms of creating a very good pipeline for the U.S. As is expected, it will be heavier in terms of our demand for the fourth quarter than the third quarter, because as you know [big] decision always driven by the budgeting cycles. We're also been proactive tomorrow when we launch the UTI campaign, that is going to become the basis for promoting the iQ200 technology in the clinical laboratory to accelerate the update. So we are confident in terms of -- that the instruments will be there.

As you know, it's always [comes] difficulty to predict exactly what is going to happen on a quarter-by-quarter basis, but for the full year we feel very confident. As the consumables have been growing very quickly, I don't think we're going to see a big jump in consumables in the third quarter, in particular because of the seasonality in Europe. But also we do expect to have another jump in consumables in the fourth quarter. When you put all of these things together, we believe we can get to the $98 million and the [$0.48]. That is basically the -- we have confirmed the projection, going through the focus again.

Ernie Andberg - Feltl & Company

This is coming from memory. I don't have my notes --

Cesar Garcia

The other thing that Tom Warekois is bringing in is that the legacy instruments are getting to the end of their life, and there is a going to be a big push in the third and fourth quarter to replace the legacy instruments that we carry in the market in 2003.

Ernie Andberg - Feltl & Company

My recollection from an earlier quarter was that is less than 100, you said 50 or 75 is still out there?

Cesar Garcia

It's kind of difficult to say exactly, but between 50 and 75 machines, and then we will move basically to try to replace all of those by the end of the year, because as you know, it's been publicly disclosed, the strips that are used to drive those systems will be discontinued by our supplier in May of 2009. So the customer has the motivation to shift into new technology, because we'll no longer be able to supply those strips.

Ernie Andberg - Feltl & Company

Okay, I will get back in line. Thank you.

Cesar Garcia

Thank you.

Operator

We'll go next to Matthew Scalo with Canaccord Adams.

Matthew Scalo - Canaccord Adams

Okay, you guys, I will limit myself to 15 questions.

Cesar Garcia

Yeah, Matt. Is a compound the question.

Matthew Scalo - Canaccord Adams

Just two questions on the very generous -- obviously using the miscellaneous code for a risk of recurrence claim, are you going to need show health economic studies that either show a benefit or obviously the benefit over of the cost tied to therapeutic action, number 1, I guess is my first question, and the second question on the UTI initiative, are you going to announce new assays or new kits into the market in the second half of '08?

Cesar Garcia

I'm going cover the first one about the miscellaneous code and then going to let Tom talk about the UTI. In terms of the miscellaneous code, if you go to the slide where we have the arrows, you basically are have two approaches. One is a miscellaneous code, and then there is a special miscellaneous code for new technology, and we are going to pursue both avenues. We haven't made a decision at this point in time. The benefit of the code 3 - category 3 miscellaneous code is that the - if you prepare a protocol for a health economic study, the Medicare will reimburse you because for the cost of that testing during the performance of the health economic study. So you get automatic reimbursement for the duration of the study, but it's limited to that period. It's not reimbursement that you will be able to continue, and at the end of that study, they will assign a reimbursement value and reimbursement code. So to get it to the market, we're going with the miscellaneous, and we still have yet to decide if we're going to be using the category 3 or not. We have two different groups that are reimbursement experts working with us, plus the medical advisory committee.

Matthew Scalo - Canaccord Adams

Okay, Cesar, we could see a situation, even if CMS establishes down the road here an agreement to the dollar amount that payers would probably look for more conclusive studies as to why they would pay for that test?

Tom Warekois

I think the answer -- this is Tom Warekois. I think the answer to that is yes, and I think what we're going to be doing is on the basis of the study that we have already, plus the basis of the study that will be used for the FDA, we're also thinking of doing some additional health economic studies that we can put those kind of three elements together, and as we continue to compile the evidence of how that is, in fact, changing or could change medical practice, improve patient care and save cost to the system, clearly that would, in fact, continue to increase our justification for the price. I think that is why we have quite a wide range right now of $300 to $1,000 based on various inputs we have gotten, but we still need probably, as you mentioned, a couple of studies that will be available in the next 3 to 4 months that we can add into that value proposition as we start to talk to the payers about why we think this is the appropriate value.

Matthew Scalo - Canaccord Adams

Okay, terrific. And as far as the UTI side?

Tom Warekois

The UTI, I'm not sure how much everyone on the phone is aware, but as of October 1, as Cesar mentioned, you are not going to get paid in the hospital unless you can identify a patient as having a UTI before they actually got admitted, and the impact of this is in fact that there will be more urinalysis testing done by the hospital, they can't risk the fact that they haven't identified someone and then not get the cost of treatment. The treatment is typically about $800 and there's about 600,000 cases a year in the U.S.

So what we're really doing is that we have some pretty good evidence from studies that have been done, and we'll be showing them at AACC, that you can use the combination of our urine chemistry and our microscopy together to get a kind of a negative predictability of whether or not there is a UTI infection, probably somewhere between 95% and 97%. There is various degrees of negative predictability that's been done in a variety of studies. And it's really a combination of the elements that you get out of urine chemistry and the elements you get out of microscopy when you put together to really help the patients or help the lab to be able to triage what really belongs going to culture for a positive confirmation versus those that you have a pretty good idea that this is not a positive culture.

We're also working with VD, which gives them the availability to sample integrity by using their sample collection cups, which helps to reduce false positives as well. So it's really taking our current technology and being a little bit more precise in the capabilities of the current instrument with regards to negative predictable of UTI, and those are the things that we'll be really kicking off strong at AACC and continue to push beyond AACC.

Cesar Garcia

Matt, we want to go back to your questions about doing the studies, because there are some recent studies that have been released recently that are very pertinent to the discussion.

Tom Warekois

One of the studies that was just published in JAMA in June by Trock et al from Hopkins. It involved two groups of patients. One group of patients had a doubling time of PSA of less than 6 months, and the other group had a doubling time of greater than 6 months, and both of them were subjected to external beam salvage radiation. The group who had a rapid doubling time had significantly better outcomes in terms of survival than did the group that had a slow doubling time, which means that the rapid doubling time patients actually still had disease at the site of surgery, which was very surprising.

And then the other point was, as was brought up by a member of our medical scientific advisory board, where when you have a patient, let's say 56 years old, he has a very high - has a high Gleason score and he has poor margins from surgery. Right now that patient would be moved directly on to salvage radiation, but it was pointed out that with our test that the doctor would be able to actually evaluate that patient to determine whether he should have salvage radiation. In fact, if his results were still below 15 pg/ml, the doctor would wait. The importance of that is that only half of these types of patient actually still have disease. So what we would be doing here is actually avoiding salvage radiation for 50% of these types of patients.

Matthew Scalo - Canaccord Adams

That is terrific. Thanks, guys.

Cesar Garcia

And going back to the health economic argument, every treatment is between $25,000 and $50,000 for treatments, so when you begin to do the numbers it's really a significant savings to the health care system, not to mention that you avoid this risk to the patient. Because a lot of these patients are burned from the radiation and they suffer other complications. Next on to next caller.

Operator

We'll go next to be with B. Riley we go to Sal Kamalodine. Please go ahead, sir.

Sal Kamalodine - B. Riley & Company

Thanks. Just wanted to see if you could help us quantify the UTI opportunity or help me understand it a little better. What is the overlap in terms of where you currently have iQ systems and where there is likely to be a big increase in testing volume as a result of the UTI mandate?

Tom Adams

I think the answer is across all the hospitals. I mean this is not a selective hospital site or hospital location. Virtually every hospital that is covered under Medicaid is falling under this new jurisdiction that they will not be reimbursed for UTI unless it's documented in pre-admission. So if you look at the whole hospital population, unfortunately our systems do not necessarily go down to the very small hospitals but then again, they probably don't have as big an issue based on volume. But, you know, we typically will cover any hospital that is generating somewhere between 40 to 60 microscopies a day and up. So it's still a bulk of hospitals that are there in there U.S. that our products can offer a solution to them.

Sal Kamalodine - B. Riley & Company

Okay. I guess another way to ask would be, where you don't currently have an iQ select, your lower volume system, is the UTI mandate enough to drive the customer to decide to buy an iQ select at the margin because of the UTI mandate?

Tom Adams

We certainly hope so.

Cesar Garcia

You know, let me clarify, Salomon, this is part of a bigger initiative. It's not only the UTI initiative. Basically Medicare will not reimburse for 8 different kinds of hospital-acquired conditions, and that includes UTI catheters, vascular catheters, hospital infections, hospital falls, different falls in the hospital, objects left in the patient, basically all kinds of infections and accidents that will be not be reimbursed if the hospital hasn't been diligent in performing their services.

Tom Adams

One of the things that we're doing of interest here is that we're doing a little bit of on the floor market research over the next few days to really understand and get a better assessment of how well this is known in the hospitals in terms of this ongoing challenge, and what type of impact they feel and how they might feel they are going to need to address it. So I think it's intuitive that you feel that there is going to be more urinalysis, there's going to be testing across the whole hospital -- the site of hospitals. The issue is, how much will that drive low volumes into the volumes that can be addressed by our system and our offering? My sense is that logic would tell you with more urinalysis we should be able to make our offer to more hospitals.

So we have a pretty effective program right now telemarketing, that we're actually going down into these lower hospitals where we typically don't put our sales people, and this is one of the messages we're also communicating in this point as well. Are they aware of this, what kind of volume increases they see, and are they interested in perhaps talking to us about an automated solution?

Sal Kamalodine - B. Riley & Company

Right. So it sounds like near-term there is probably an increase in volume where you currently already have a system, and longer term maybe it drives more demand for the actual system?

Cesar Garcia

That is correct. You are basically be able to convert people that have been marginal in volume where they will be able to [implement] information because of the increment volume due to the UTI.

Sal Kamalodine - B. Riley & Company

Okay, and then my last question is how do you foresee the marketing phase for the PSA test once you have approval in the first half of '09? How does the marketing phase of the introduction process work? How do you foresee that happening?

Tom Adams

I think actually the initial approach we're taking here at IRIS to partner up with probably one of the larger reference labs or more to really be able to put that through as the first active commercial activity, and it would be a joint effort between our partner and ourselves being able to both convince the clinician of the value of the test and also work with the reimbursement agencies to be able to start to drive the value of that test. Longer-term, we're looking for an IVD partner, as Cesar mentioned, to help to continue to push that into the marketplace and also outside of the U.S.

Sal Kamalodine - B. Riley & Company

Okay, so it sounds like phase 1 is you get a reference lab to co-market this with you, and then longer-term maybe you get a licensing agreement in place?

Tom Adams

Yes.

Sal Kamalodine - B. Riley & Company

Okay. Thank you.

Cesar Garcia

Next caller?

Operator

We'll go next to [Gary Schwab] of Valley Forge Capital Management.

Gary Schwab - Valley Forge Capital Management

Hi, Cesar, I had my questions answered. Thanks a lot.

Cesar Garcia

Thank you, Gary.

Operator

Next from Mulholland Capital we'll go to Thomas Laird.

Thomas Laird - Mulholland Capital

Good afternoon. I just wanted to pursue the reimbursement on the NADiA one step further. Would it be right to assume until you get a defined reimbursement code that you are probably not going to see a lot of adoption by the private pairs? And so if we were thinking about when this goes commercial, say first half, mid '09, we might not see too much revenue until '10, realistically?

Cesar Garcia

That is correct. Typically, if you looking towards our 5-year projection, we assume that the reimbursement in the first year will be low. Actually the revenue will be low, even though you may have a high reimbursement, because you have to follow the business dynamics of going to the insurance company, making sure that they understand how it's used, justified, and I think that is why it's important to have a good partner both on the laboratory side and on the commercial side, that they have been successful in doing those types of negotiations with insurance companies.

Tom Warekois

I think as well as the value proposition, when we put together all of the data that we're still going to run with the FDA, and some of the health economics, the stronger that data is and the more we can show the positive impact of the diagnostic testing in the healthcare system, hopefully that is the arguments that we need to use successfully with these payers. We'll triage where we think we should spend our effort and time getting to the top payers that would be implicated in this kind of the testing and in the locations they would be implicated, so that we can keep a focus and kind of roll it out over time.

Cesar Garcia

To add to what Tom is saying, this next step in [doing] the study is very important, not only for only for getting clinical approval - regulatory approval, but also to document the benefits and the performance of the NADiA PSA Assay. So it has both a regulatory implication and a significant market value, because we would like to eventually post the results and then use that publication to create a demand that I covered on my slide in terms of having doctors that prescribe the test.

Thomas Laird - Mulholland Capital

Second question, could you tell us anything about your efforts maybe to license the NADiA technology beyond the PSA test, or sort of where that stands and if --

Cesar Garcia

The only thing that we can tell at this point in time that we're talking to a number of IVD companies, and most of those are large IVD companies, medium and large, and at this point in time we're not in negotiations with anyone, but we have found significant interest, okay, in NADiA as a platform and NADiA PSA as a product. I think that the other things, it would be premature and kind of breaching confidentiality with the people that we're talking with.

Thomas Laird - Mulholland Capital

Okay, thank you.

Operator

Ernie Andberg with Feltl & Company has a follow-up question. Please, go ahead.

Ernie Andberg - Feltl & Company

Cesar, not to beat a dead horse here, but the UTI side of things, how many iQ200 systems do you have of the 1,945 on one of our slides in the U.S. right now?

Cesar Garcia

650.

Ernie Andberg - Feltl & Company

650? Okay.

Cesar Garcia

You have the legacies that also you will be converting those, too, yes.

Ernie Andberg - Feltl & Company

Okay. Do you have an idea yet of the hospital admissions that are going to be staying there, how many of those have some kind of urinalysis done now and how many more might get done down the road? I understand --

Cesar Garcia

I understand your question, and it's just too early. A lot of these hospitals when you talk to them, it's almost like they react with surprise that they have to comply with this regulation. So we're basically in the early stages, and hopefully because one of the first companies that is addressing it and making this a part of our platform and marketing campaign will get the maximum benefit. But it's just too early to put a number into it. I know where you guys are looking, you would like to really have how many sites, how much tests. Unfortunately, we don't have that information yet.

Ernie Andberg - Feltl & Company

Okay. That is fair enough. Thank you very much.

Cesar Garcia

You are welcome.

Operator

And we have no further questions at this time. I will turn the call back over to Mr. Garcia.

Cesar Garcia

Thank you, Sara. I want to thank everyone for participating. It's probably been the longest conference call in the company's history. I am really pleased with the level of interest. Just as a remainder, we are at the AACC in Washington, D.C., we look forward to those of you that will be able to participate tomorrow afternoon. We have a brief presentation in the exhibit room, and then we're going to have a meeting for the institutional shareholders and analysts, when we will actually demonstrate the VELOCITY and iRICELL.

With that said, I want to thank you for participating and looking forward to a very successful 2008. Bye now.

Operator

Ladies and gentlemen, if you wish to access the replay of today's call, you may do so by dialing 1-888-203-1112. International callers dial 719-457-0820. And both use access code 2534346 to access the playback. This does conclude our conference for today. You all may now disconnect.

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